Commodity shares are an attention-grabbing kind of inventory. Their cyclicality means extra volatility, with extra upside but in addition extra draw back. For that reason, many traders are nervous about investing in these shares. Oil and fuel shares like Suncor Power (TSX:SU) are commodity shares however with a twist. Up 70% within the final seven months, can Suncor Power inventory keep this power?
Let’s look into this.
Suncor is a unique form of commodity inventory
As an oil and fuel firm, Suncor is clearly uncovered to grease and fuel costs. However Suncor is totally different. Its focus has been on diversification and publicity to many various components of the worth chain, which lowers threat. It steadies money flows from one quarter to a different, because it lessens the affect of modifications in oil and fuel costs on money flows.
Suncor’s oil and fuel enterprise contains a big community of downstream areas (refining) in addition to an upstream section (exploration and manufacturing). It’s additionally comprised of 1,800 Petro Canada retail and wholesale areas throughout Canada. Because of this the corporate has publicity to totally different components of the oil and fuel worth chain. It additionally signifies that Suncor has the power to make choices to make the most of essentially the most worthwhile space at any given time. And it signifies that Suncor will not be as involved with the WTI oil worth as it’s with the unfold – or the distinction between the refined product costs and the uncooked commodity (oil and fuel) costs.
Report operational efficiency
It’s tempting to consider that Suncor Power’s latest inventory worth efficiency shall be adopted by weak point. In spite of everything, the inventory has damaged data and is now buying and selling at all-time highs. And it’s a commodity inventory, so this may be seen as a promote sign.
Nevertheless, as I mentioned within the earlier part, Suncor will not be precisely a typical commodity or oil and fuel firm. However greater than this, Suncor has been breaking data inside its enterprise. And I believe that this, in and of itself, can justify its inventory worth motion. And I additionally assume that because of this there may very well be much more upside available.
For instance, in Suncor’s newest quarter, manufacturing broke data. Utilization broke data. Working prices trended decrease, and naturally, this was accompanied by report monetary efficiency as nicely. Adjusted funds stream elevated 1% versus final 12 months to $3.8 billion regardless of decrease oil costs. Adjusted funds stream per share elevated 6% to $3.16 due to Suncor’s share-buyback program.
Moreover, the corporate’s earnings per share (EPS) for the quarter got here in at $1.48, far surpassing expectations of $1.08 and in keeping with final 12 months regardless of oil costs that had been considerably decrease.
The underside line
Right now, Suncor Power inventory is buying and selling at a mere 14 occasions this 12 months’s earnings and 6.2 occasions money stream. In my opinion, the corporate’s momentum might be anticipated to proceed. And whereas oil costs are vital, it’s extra sophisticated than that. Suncor’s returns are up, and shareholder worth creation is rising proper together with it. For dividend traders, Suncor inventory is at the moment yielding 3.8% and is backed by comparatively regular and predictable money flows.
